36% Listing Gain? Vraj Iron IPO Soars with Strong Demand & Analyst Optimism

Vraj Iron and Steel’s IPO has seen strong demand, with an 8.3x oversubscription by the second day, driven by high interest from non-institutional (11.73x) and retail investors (11.27x), while QIBs subscribed at 0.62x. The company raised ₹51 crore from anchor investors before the public subscription. IPO proceeds will be used for Bilaspur Plant expansion and debt repayment to HDFC Bank. The grey market premium (GMP) of ₹75 suggests a potential 36% listing gain. The IPO, valued at ₹171 crore, consists of a fresh issue of 0.83 crore shares.

The subscription period runs from June 26-28, with the listing expected on July 3 on BSE & NSE. Vraj Iron and Steel has demonstrated strong financial growth, with a 121% profit CAGR (FY21-FY23) and robust ROE of 38.2%. Expansion plans include increasing captive power capacity from 5 MW to 20 MW and boosting production capacity. Analysts recommend subscribing due to strong growth prospects, cost efficiencies, and attractive valuation. KR Choksey & Master Capital highlight a 12.6x P/E ratio, projecting further growth by FY26.

36% Listing Gain? Vraj Iron IPO Soars with Strong Demand & Analyst Optimism

Vraj Iron and Steel’s IPO has witnessed strong investor interest, with the issue being oversubscribed 8.3 times by the second day of bidding as of 12:30 PM. Non-institutional investors (NIIs) have shown significant enthusiasm, subscribing at 11.73 times, while retail individual investors (RIIs) have subscribed at 11.27 times. However, qualified institutional buyers (QIBs) have subscribed at a lower rate of 0.62 times. Prior to the public offering, the company secured over ₹51 crore from anchor investors.

IPO Proceeds for Expansion and Debt Reduction

The funds raised through the IPO will primarily be used to expand Vraj Iron and Steel’s Bilaspur Plant under its “Expansion Project” and to repay existing loans from HDFC Bank. Additionally, a portion of the proceeds will be allocated to general corporate expenses.

Market sentiment around the IPO remains positive, with the grey market premium (GMP) currently at ₹75, indicating a potential listing gain of 36% over the upper price band. The IPO is valued at ₹171 crore and consists entirely of a fresh issue of 0.83 crore shares via the book-building process.

Key IPO Details: Dates and Allotment

The IPO subscription period runs from June 26 to June 28, 2024, with a price band set between ₹195 and ₹207 per share. Retail investors can apply for a minimum lot of 72 shares, requiring an investment of ₹14,904. NIIs must apply for at least 14 lots (1,008 shares) at ₹208,656, while QIBs must apply for a minimum of 68 lots (4,896 shares) amounting to ₹1,013,472.

The share allotment is expected to be finalized by July 1, 2024, with the listing tentatively scheduled for July 3, 2024, on both the BSE and NSE.

Strong Growth Potential in the Steel Industry

Analysts are optimistic about Vraj Iron and Steel’s IPO, highlighting the company’s strategic position in the growing steel sector, which benefits from rising urbanization, a robust automobile industry, infrastructure development, and government investments.

The company has demonstrated strong financial growth, with profits increasing at a compound annual growth rate (CAGR) of 121% from FY21 to FY23, coupled with reduced borrowing. In FY23, Vraj Iron and Steel reported a return on equity (ROE) of 38.2% and a return on capital employed (ROCE) of 44.98%.

Additionally, the company is investing in infrastructure improvements, including expanding its captive power plant’s capacity from 5 MW to 20 MW and increasing its production capacity to 500,100 tonnes per annum (TPA) from the current 231,600 TPA.

Profitability and Attractive Valuation

The planned expansions are expected to enhance efficiency, reduce costs, and improve financial performance. The company’s plan to use IPO proceeds for debt reduction is anticipated to strengthen its balance sheet, lower interest expenses, and boost profitability.

Leading analysts, including KR Choksey Research and Master Capital Service Ltd, recommend subscribing to the IPO. KR Choksey highlights the company’s attractive valuation, with a price-to-earnings (P/E) ratio of 12.6x based on FY23 adjusted earnings per share (EPS). Master Capital Service Ltd expects the expansions in sponge iron and captive power plants to be completed by FY25, with MS billets capacity increasing by early FY26, making it a strong pick for long-term investors.